How to Save for Retirement With No Company Pension Plan
The number of companies providing defined benefit pension plans, or even defined contribution pension plans and Group RRSP alternatives, continues to decline. As well, the frequency of employees changing jobs has been on the increase for years. Therefore, increasingly, the onus is on individuals to provide for their own retirement.
So, what do you do if you do not have a company pension plan? There are several strategies and vehicles to help you save for your retirement. The key is to have a plan and to start as early as possible.
Government Benefits
While you may not be entitled to employer pension benefits, the government of Canada provides several retirement benefits as long as you meet specific qualifications.
Canada Pension Plan (CPP)
Every Canadian is entitled to receive CPP benefits upon reaching the age of retirement. You can claim CPP benefits as early as age 60 and can defer them to age 70. The longer you defer your CPP the greater the monthly payment you will receive.
To qualify for the CPP you must have worked for a minimum number of years and have made the required contributions to the plan (which are deducted from your employment pay cheque).
Old Age Security (OAS)
The Canadian government also funds the OAS. You do not contribute to the OAS through your pay cheque. You do not have to have worked to receive the OAS. To qualify, you need to have been a Canadian citizen or a legal resident who has lived in Canada for at least ten years.
You can begin receiving the OAS at age 60, but the longer you defer it the greater the monthly amount you will receive.
Guaranteed Income Supplement (GIS)
For low-income seniors, the GIS tops up the OAS with an additional non-taxable benefit. To qualify for the GIS, you must be over the age of 65, living in Canada, and receiving the OAS.
You must apply for the GIS and make sure you file your annual income tax return as proof of your income.
Personal Savings and Investments
If you do not have employer pension benefits, saving for retirement can be challenging. However, there are tax-saving investment plans that can help you achieve your retirement income goals as long as you consistently contribute to them.
Registered Retirement Savings Plan (RRSP)
Your contributions to an RRSP are tax-deductible, meaning you can subtract the amount you contribute to reduce your taxable income in that year. Any withdrawals made from an RRSP are taxed as income, whether they are made before or during retirement.
Tax-Free Savings Account (TFSA)
You can contribute a specified amount to a TFSA each year without paying taxes on the investment earnings. Contributions are not tax deductible. However, withdrawals are not considered income, so they are not taxed.
Both of these savings vehicles allow your investments to grow tax-free.
A qualified retirement planner can help you establish a TSFA and RRSP savings strategy that best fits your current financial situation and future retirement goals.
Retirement Planning is Crucial
Government-sponsored retirement benefits are designed to help you with your retirement. But it is best not to depend on them to fully meet your retirement needs. You should have several income sources including RRSPs and TFSAs and additional savings where possible.
Getting the help of a retirement planning professional is crucial to maximizing your potential retirement income and providing you peace of mind as your retirement years approach. It is never too early to begin retirement planning!
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.